Interest Rates Holding in 2.80’s

Our end of year forecast for the 10 year treasury to close the year at 3.25% is looking more and more to be too high.

It is interesting that no matter what the economic news is rates either hold steady or fall. We checked and saw the FED let $30 billion run off the balance sheet last week so with reduced FED demand other global buyers are stepping up to buy the treasury paper.

It is amazing to me that global buyers are continuing to buy U.S. bonds for the ‘safety’. It is scary to think that the U.S. is the best risk in a world–but it is what it is.

One day–someday–all of this will come home to roost. In spite of a pretty good economy the U.S. ran a deficit of about $80 billion in July alone–with corporate taxes being $55 billion lower than a year ago July. Projections are for over a trillion in deficits for each of the next couple of years. Our progress toward becoming ‘Greece’ continues.

REMEMBER–deficits don’t matter to bond buyers–UNTIL THEY DO. No bells or whistles will sound — it will just happen. We will go to bed with the 10 year treasury at 2.9% and wake up and find it at 3.5% and panic will ensue.

17 thoughts on “Interest Rates Holding in 2.80’s”

This is a standard mutual fund. Bank loans are only sold to instititions. Buy and sell overnight. I use FFRHX from fidelity. Morningstar assigns it a bronze rating. For bank loan category bronze is highest they assign but there are other others like tprice Rowe. The fidelity run has been a consistent total return producer of 4% for 10 years. Bank loans tend to be short term, float with libor, must be backed by assets and sit very high in default stacks (above bonds I believe). The real attraction to me is they float

I think about the quote below as well. It is true. At some point, the USD will probably be devalued. Would be good for the gold bugs.

“One day–someday–all of this will come home to roost. In spite of a pretty good economy the U.S. ran a deficit of about $80 billion in July alone–with corporate taxes being $55 billion lower than a year ago July. Projections are for over a trillion in deficits for each of the next couple of years. Our progress toward becoming ‘Greece’ continues.”

It is just a tough go out there for “safe”yield without duration risk. As fellow poster here messaged me saying, the drumbeat of higher rates is never stronger, but the opportunity for yield lessons with each call, or even price bid up. I have chased yield buy purchasing a big chunk of AGO-B. You get a 100 basis point free ride in relation to AGO-F by taking a modest call risk of 50 cents for perpetual Baa debt that has been past call for a dozen years. I plan on unloading 1000 of them after it crawls back up from going exD.
And of course my love for the quirky… A now have a nice big chunk of CNIGP paying up a bit the past few days to fill it out. But even these have a YTC of over 4% QDI by 2026 termination date. And the juicy 1.2 conversion to common stock anytime at my beckon really makes this a compelling purchase for me. This public utility is very old but small. In fact Gabelli and the CEO themselves own 35% of the common float (6 people/entities own well over 50% of the common float) and 53% of the CNIGP float and they never sell so its very illiquid generally.

You should read John Mauldins Train Wreak series. It really put into perspective that sometime in the next decade we are going to see a great reset when it comes to debt. The deficit is so high…. its a joke to think it will go down or every will be “paid” back.

Yes, but that begs the question of what to do with excess cash that is our “safe” money. I have purchased some of the issues discussed here but I’ve also put quite a bit in a one year CD latter and those rates are nothing to get excited about. My cash available is earning practically nil! It doesn’t seem like there are any good fixed income options available at the moment. I would love to see a little panic.

Hi Tim – glad you mentioned GABXX and I’m taking a look at it now at Etrade. It says the purchase commission is $0, but for this class AAA fund looks like a $5 redemption fee and another $5 to close out, and you have to watch the fund’s performance each year to see if the return is decent. So do you just park a chunk of cash in it and maybe add as more cash becomes available, then extract what you need for other purchases? Just trying to figure out how you use it and if this is a good one for me. thanks.

Hi Leonard–I have just parked 2 decent chunks in there as I seem to always have too much cash. So far I have only ‘parked’ money–haven’t moved any out yet. So I guess I wouldn’t move money in that you are going to need in the next month or two–my balance is just over 20,000–and I almost always have that much laying around in the account.

I just look at the current yield–we all know that the last few years were terrible for money market. But if a panic came and bargains arose I would move it out and redeploy it.

Which money fund at Fido do you use, if you don’t mind my asking. I know our IRA account uses FDRXX but I’ve got 200k sitting in a bank account at Chase paying .01% that I could move to my Fido Brokerage account.

Hi Retired–I believe that is it (FDRXX)–yes just checked–it is the ready reserves and today I see it is 1.62%–thought is was a little higher–of course there are no fees etc that one sees with this one.